Faraway, so close! technology diffusion and firm heterogeneity in the medium term cycle of advanced economies (Updated May 2019)

Monica Correa-Lopez and Beatriz de Blas ()

No 1835, Working Papers from Banco de España

Abstract: Large US firms, by diffusing embodied technology through trade in intermediates, appear to drive Europe’s output over the medium term. We develop a two-country model of endogenous growth in varieties, cross-country firm heterogeneity and trade to match this evidence. A US TFP slowdown generates a pronounced recession in Europe, while a negative investment-specific shock also imparts a protracted recession in the US, since GDP and firm productivity stay below trend beyond a decade. Heterogeneous firms, with endogenously changing productivity cut-offs, and the responses of innovators and adopters determine medium-term adjustment, as import switching processes unfold.

Keywords: international business cycles; heterogeneous firms; embodied growth; trade (search for similar items in EconPapers)
JEL-codes: E32 F14 F44 L11 O33 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2018-10, Revised 2019-05
New Economics Papers: this item is included in nep-bec, nep-ino, nep-mac and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1835

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